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Congratulations. You’ve decided to buy a company. The only thing that stands between you and the purchase is lack of capital. Fortunately, many sources of capital exist that can help you accomplish an acquisition-some simple and straightforward, others more esoteric.

The Big 6

Wading through financing choices-let alone picking one-can be taxing. Here are the basics about six options you can discuss with an acquisition professional.

1. Buyer’s liquid cash.

On the simple and straightforward side of the ledger sits your bank account. When considering the use of your cash, note how much risk you’re willing to assume, because risk grows in proportion to cash expended. That said, why should you put up any money at all? Well, when approaching third parties for money, keep in mind that they want to share the risk-or, as it’s sometimes known, they want the purchaser to have “skin in the game.” Investors rightly believe that it’s in everyone’s interest for all investors to be somewhat “at risk.”

2. Buyer’s company stock.

If you’re a publicly-held company, or a privately-held company with plans to go public soon, you may want to consider the use of your company’s stock (either preferred or common). But keep in mind that the seller’s motivation is usually in creating a “liquidity event.” As a result, cash will be king, so using stock means the stock will be discounted against the cash price, increasing the number of shares you’ll need to use and, ultimately, raising the purchase price.

3. Acquisition target’s assets.

Interestingly, many potential acquirers look at the target’s assets. Frequently, banks and other secured lenders make loans against such assets, including accounts receivable, inventory (raw material and finished goods only), furniture, fixtures, machinery and equipment. The dollar amount banks will lend against these asset categories varies-usually starting at 80% to 85% of the most liquid assets (receivables less than 90 days old).

Next come raw materials and finished goods. When banks or other lending institutions consider inventory, they normally will advance no more than 50% to 55% of value – and then only when the inventory in question is deemed liquid. Last, most banks will lend approximately 80% of “liquidation value” (the price a buyer would pay for an asset at auction) against the borrower’s fixed assets.

4. Cash flow loan.

Some lenders will make a cash flow (also known as an over-advance) loan, when the borrower, target or the combined business’s cash flow supports a loan of this type. Usually, these additional advances are made only on a short-term basis. And, if the transaction involves only privately-held companies, it’s typical for banks to secure personal guarantees from the borrowing entity’s principal stockholders.

5. Real estate.

Another potential cash source is the company’s real estate, if you intend to acquire it along with the business.You can mortgage or refinance buildings and land if they’re already subject to a mortgage, or sell and lease them back.

6. Mezzanine/subordinated lenders.

These lenders comprise many private equity groups. The groups’ risk level falls between banks and other secured lending institutions discussed previously, and pure equity investors. Mezzanine/subordinated lenders’ compensation is between that of equity providers and secured debt holders.

Mezzanine lenders normally get a cumulative cash yield on their investment of 9% to 15% over the investment’s life. In addition, they also get a “kicker” that typically appears in the form of warrants, which will increase these investors’ yield to 18% to 25%. The number of offered warrants governs the expected yield on these nominally priced warrants.

Narrowing It Down

There’s no such thing as a free lunch or financing option. Every cash source costs money, usually in the form of interest owed to the lender. So, when considering whether to buy a business and how to pay for it, remember that part of the ongoing cost of operating the acquired company will be paying for other people’s money you used to purchase it.

If you need help breaking down funding options-or want to discuss other facets of acquisitions, please call VR at 1.800.377.8722 .

VR can also help with setting up Financing if you are interested in owning a VR Business Brokers Franchise.

Preparing Yourself To Apply For An SBA Business Loan

In today’s economic environment, there’s a smart way to obtain a small-business loan according to a recent article in the Los Angeles Times.

Preparation is one thing that is essential in obtaining loan approval. You need to be able to explain and justify every area of the business you are buying. You can’t simply present projections for the next five years and talk about construction and renovation. In many cases, you will need additional data and may have to revise your application.

SBA lenders will actively look for small businesses that are aggressive in obtain a strong profit margin while keeping overhead low. They will also look at character, where you will not only be able but willing to write a check to cover a loan if it goes bad.

SBA Financing To Purchase A Business

SBA financing offers buyers attractive loan terms and interest rates while eliminating, or reducing, the need for the seller to carry a note. This means a lower down payment and lower debt service for the buyer, which translates into more net income for the buyer. Both of these factors make SBA financing attractive.

Financing the Purchase of a Business: The deal has to make dollars and sense

The most important factor a buyer must consider in the purchase of a business is cash flow. Financing substantially increases a buyer’s cash flow while lowering their up front investment. Thus, financing is a critical factor in a successful transaction.Read more about Financing The Business Acquisition here…

OWN A VR BUSINESS FRANCHISE TODAY!

VR Has a Tremendous Opportunity, with over 100 locations worldwide and over 70,000 transactions closed.

VR is a leading international intermediary franchise. We specialize in the sale of small and medium privately-held businesses.

The VR Business Sales division, which opened in 1979, handles the sale of small businesses up to $2 million in value.

The VR Mergers and Acquisitions division serves a diverse client base, including individuals, corporations and institutions seeking assistance in the acquisition, divestiture or valuation of mid-market companies up to $200 million in size. Financing available.

Call today to learn more about owning a VR franchise at 1-800-377-8722!

Using SBA Loans to Finance a Business or a Franchise

Finding the Right Path to Capital

The biggest obstacle people have when trying to buy a business stems from lack of down payment and little start-up capital. However, any VR Business Sales intermediary will explain that SBA-guaranteed loans are a great option that will become easier to obtain given the latest SBA bill that was signed into law. They are very attractive to small business buyers due to long-term financing and a low down payment.

If you are interested in exploring the options of owning a VR Business Franchise and how you may be able to finance it, please contact us online or Call Director of Franchise Development, Toll-Free: 800-377-8722 or 954-565-1555